Falling bank stocks unravel stock rally

Photo by Mark Lennihan / Associated PressAn AT&T store is shown Tuesday in New York's Times Square. Strong results from the wireless business softened the effect of the weak economy at AT&T Inc., helping the country's biggest telecommunications carrier beat analyst estimates for the first quarter of the year. (Click on photo to enlarge.)

By TIM PARADIS
Associated Press

NEW YORK - Nagging worries about banks upended a stock market rally Wednesday.

Financial stocks steered the overall market for the third straight day after Morgan Stanley and credit card issuer Capital One Financial Corp. posted lackluster quarterly reports. Investors have been worried about rising levels of souring debt on bank balance sheets.

A late-session drop in banks left Wall Street's major benchmarks mixed. The Dow Jones industrial average fell 83 points, while the technology-heavy Nasdaq composite index ended modestly higher ahead of a quarterly report from eBay Inc. and following earnings from Yahoo Inc.

Banks had tumbled on Monday after Bank of America warned of further loan losses, only to jump back on Tuesday after Treasury Secretary Timothy Geithner told Congress that most banks were well-capitalized.

The jumpy trading in financial shares came just as major companies report first-quarter earnings. Results from AT&T, Boeing and McDonald's contained glimmers of hope about consumer spending and the economy in general.

"We're starting to see a little light at the end of the tunnel," said Frank Ingarra, co-portfolio manager at Hennessy Funds. "The challenge is I don't know how long the tunnel is."

According to preliminary calculations, the Dow fell 82.99, or 1 percent, to 7,886.57.